MODULE 4

COMPOSITION OF GROSS ESTATE

(A) Real Properties

(B) Personal Tangible Properties

(C) Personal Intangible Properties

(D) Decedent’s Interest: Value of any interest in property owned or possessed by the decedent at the time of his death.

(E) Other Taxable transfers

(a) Transfers in contemplation of death

(b) Transfers intended to take effect upon death (with retention or reservation of certain rights)

(c) Conditional and Revocable transfers which are not consummated as of the date of death

CONCEPT STRUCTURE:

CONSUMMATED BEFORE DEATH NOT CONSUMMATED AS OF DATE OF DEATH

CONDITIONAL TRANSFER Shall be regarded as a donation inter-vivos Shall be regarded as a donation mortis-causa subject to estate
subject to donor’s tax upon: tax if the death of the transferor precedes the either the fulfillment
(a) fulfillment of the condition other than or waiver of the condition.
death before the death of the transferor
(b) waiver of the condition by the transferor
REVOCABLE TRANSFER Shall be regarded as a donation inter-vivos Shall be regarded as a donation mortis-causa subject to estate
subject to donor’s tax upon: tax if the death of the transferor precedes the either the waiver or
(a) waiver of the power to revoke of the lapse of the transferor’s power to revoke..
transferor
b) lapse of the transferor’s power to revoke
You may refer module 1 (INTRODUCTION TO TRANSFER TAXATION) to revisit the concepts above.

(d) Transfers made under GENERAL POWER OF APPOINTMENT

(e) Transfers for Insufficient Consideration

GROSS ESTATE OF MARRIED DECEDENTS

To give context, the gross estate of a married decedent composes of his/her exclusive properties PLUS properties owned by both spouses. What constitutes exclusive
or common property will be based on the property relationship/marriage settlement of the spouses.

Guiding Principles:
(a) Unless otherwise stated, the properties of the spouses shall be presumed to be COMMON.
(b) The fruits of properties shall be governed by the applicable property regime.

PROPERTY RELATIONSHIP BETWEEN SPOUSES

The property relationship or marriage settlement of the spouses shall be determined as follows (in order of priority):

1. Based on the agreement of the spouses

2. Based operation of law
3. Based on customs/tradition

1. BASED ON AGREEMENT OF THE SPOUSES

If there was an agreement entered into by the parties before marriage, apply the type of settlement entered into by the parties such as:

(1) ABSOLUTE COMMUNITY OF PROPERTY (ACP): As a general rule, all properties of the spouses as of the celebration of the marriage shall form part of the
common properties of the spouses.

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Key concept: ACP is RETROSPECTIVE in character in the sense that even properties owned by either of the spouses before the marriage shall be considered as
common.

ABSOLUTE COMMUNITY OF PROPERTY: CONCEPT STRUCTURE

GENERAL RULE: ALL PROPERTIES ARE COMMON, regardless of the manner and timing of acquisition

As to the fruits of properties: THE FRUITS FOLLOW THE PRINCIPAL/SOURCE FOR WHICH THEY ARISE.

If the fruits arise from exclusive properties, then such fruits shall be considered as exclusive properties. In the same manner, if the fruits arise from common properties,
then such fruits shall be considered as common properties.

EXCEPTION (THE FOLLOWING ARE EXCLUSIVE PROPERTIES):

(A) Properties of spouse with descendants in prior marriage reserved by law to the heirs.
(B) Properties acquired (1) DURING THE MARRIAGE AND (2) by GRATUITOUS TITLE by either of the spouses [including the fruits thereof as the fruits should
follow the principal/source in ACP]
Note however that item (B) may still be considered as COMMON when the transferor (donor, testator, or grantor) provides that the same ARE TO BE TREATED
AS COMMON PROPERTIES.
(C) Properties for the PERSONAL AND EXCLUSIVE USE OF EITHER SPOUSE.
[Provided that JEWELRY be considered as COMMON PROPERTY UNDER ACP].

SUMMARY OF TAX TREATMENTS UNDER ACP

Property Acquired before marriage Acquired during the marriage
(1) Properties, in general COMMON COMMON
(including fruits of labor and industry) Fruits thereof: COMMON Fruits thereof: COMMON
(2) Properties acquired by GRATUITOUS COMMON EXCLUSIVE, unless the exception applies
TITLE (received by donation or inherited) Fruits thereof: COMMON Fruits thereof: EXCLUSIVE
(3) Properties for the EXCLUSIVE AND EXCLUSIVE EXCLUSIVE
PERSONAL USE of each spouse which are Fruits thereof: EXCLUSIVE Fruits thereof: EXCLUSIVE
NOT JEWELRY
(4) JEWELRY COMMON COMMON
Fruits thereof: COMMON Fruits thereof: COMMON

(2) CONJUGAL PARTNERSHIP OF GAINS (CPG): As a general rule, only those properties which arise as fruits from the spouses’ labor, industry, chance DURING
THE MARRIAGE are considered CONJUGAL PROPERTIES.

Key concept: CPG is PROSPECTIVE in character in the sense that properties brought to marriage are exclusive properties while the fruits which may have accrued
during the marriage are conjugal.

CONJUGAL PARTNERSHIP OF GAINS: CONCEPT STRUCTURE

GENERAL RULE: ONLY THE PROPERTIES DERIVED FROM LABOR, INDUSTRY, AND/OR CHANCE DURING THE MARRIAGE SHALL FORM PART OF
CONJUGAL PROPERTIES.

As to the fruits of properties: THE FRUITS IN CPG RECEIVED DURING MARRIAGE ARE ALWAYS CONJUGAL.

All fruits, regardless of the source (whether exclusive or conjugal properties), shall be considered as CONJUGAL PROPERTIES under the CONJUGAL
PARTNERSHIP OF GAINS (CPG).

EXCEPTION (THE FOLLOWING ARE EXCLUSIVE PROPERTIES):

(A) Properties brought to the marriage by either spouse (properties owned by each spouse before the marriage).
(B) Properties acquired (1) DURING THE MARRIAGE, (2) by GRATUITOUS TITLE by (3) EITHER of the spouses.
Note however that item (B) may still be considered as CONJUGAL when the transferor (donor, testator, or grantor) provides that the same ARE TO BE TREATED
AS CONJUGAL PROPERTIES.
(C) Properties purchased with the EXCLUSIVE MONEY OF EITHER SPOUSE.
(D) Properties acquired by right of redemption, by barter, or by exchange WITH PROPERTY BELONGING TO ONLY ONE OF THE SPOUSES.

SUMMARY OF TAX TREATMENTS UNDER CPG

Property Acquired before marriage Acquired during the marriage
(1) Properties, in general EXCLUSIVE CONJUGAL

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This includes fruits RECEIVED BEFORE

MARRIAGE AND BROUGHT TO
MARRIAGE.

(2) Properties acquired by GRATUITOUS EXCLUSIVE EXCLUSIVE, unless the exception applies
TITLE (received by donation or inherited)
(3) Properties acquired by: N/A CONJUGAL

(a) ONEROUS TITLE at the EXPENSE OF

COMMON FUND and

(b) VIRTUE OF LABOR OR INDUSTRY OF

EITHER/BOTH OF THE SPOUSE DURING
MARRIAGE
(4) Properties acquired through CHANCE EXCLUSIVE CONJUGAL
(5) LIVESTOCK EXISTING UPON THE N/A CONJUGAL
DISSOLUTION OF THE PARTNERSHIP in
excess of the number of each kind brought to
the marriage by either spouse.
(6) Fruits of properties RECEIVED DURING N/A CONJUGAL
MARRIAGE (regardless of source)

(3) COMPLETE/ABSOLUTE SEPARATION OF PROPERTY (ASP): Simply stated, all properties of either spouse are respectively each spouse’s exclusive properties.
No conjugal/common properties should be identified.

2. BY OPERATIONS OF LAW (UNDER THE NEW FAMILY CODE OF THE PHILIPPINES)

In default of the agreement of the spouses, we should follow the provisions laid down in the New Family Code of the Philippines, as follows:

MARRIAGE: BEFORE AUGUST 3,1988 MARRIAGE: ON OR AFTER AUGUST 3, 1988

CONJUGAL PARTNERSHIP OF GAINS (CPG) ABSOLUTE COMMUNITY OF PROPERTIES (ACP)

3. BY CUSTOMS OR TRADITIONS

Comprehensive Example on Property Relations:

Determine whether each of the following properties below is an exclusive property or a common/conjugal property under the given property regimes.

ACP CPG
Property acquired before marriage Common Exclusive
Property acquired during marriage Common Conjugal
Property acquired via donation before marriage Common Exclusive
Property acquired via donation during marriage Exclusive Exclusive
Property acquired during marriage using exclusive property Exclusive Exclusive
Fruits from common properties Common Conjugal
Fruits from exclusive properties Exclusive Conjugal
Income earned before marriage Common Exclusive
Income earned during marriage (of both or either spouse) Common Conjugal
Jewelry acquired using exclusive property Common Exclusive
Jewelry acquired using common property Common Conjugal
Jewelry acquired via donation Exclusive Exclusive
Properties of spouse with descendants in prior marriage Exclusive Exclusive
Winnings from chance during marriage Common Conjugal
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